Twitter Feed

LLLT Paves the Way for ABS in WA

Washington State is now the first state[1] to allow alternative business structures (ABSs), whereby non-lawyers are authorized to share fees with lawyers and have ownership interests in law firms via the recently approved Limited License Legal Technician (LLLT) Rules of Professional Conduct (RPC). This new rule allows LLLTs to own law firms with lawyers. Given discussions under way within the Washington State Bar Association (WSBA) and the Washington Supreme Court, there likely will be more ABS expansion to come, along with other potential law practice regulatory reforms that will fundamentally change the law practice landscape for lawyers and our clients.

If you have not heard of ABSs before, it is because within the US, Washington is on the cutting edge of disruptive law practice regulatory reform. However, this is not communicated openly and transparently to the WSBA membership. You may have heard that LegalZoom and AVVO now offer or facilitate legal advice through their websites via a network of attorneys with whom they have relationships. You may have heard that Sam’s Club recently entered into an agreement with LegalZoom to offer both discounted legal forms and lawyer services to its members. These activities and much more are all taking place within the non-lawyer legal services market in anticipation of regulatory reforms, primarily ABSs, that are brewing throughout the US and have already occurred in countries like the UK and Australia.

When disrupting the status quo, it is a well-known strategy to plant a stake in an area of little power or consequence among the existing competition or stakeholders, achieve some wins and acceptance, and then proceed to increasingly branch out into areas that were initially more difficult to infiltrate or overcome. It is my opinion that this is exactly what is happening right now. Without transparency and proper education of the membership, influence and decision making will occur (and could be presently occurring) long before any membership debate/hearings take place re further expansion of ABSs and other regulatory reforms.

I am not against ABSs and believe that, if properly architected, ABSs could help lawyers access capital that would support innovation and ultimately improvement of legal services delivery. However, the devil is in the details. It is the lack of transparency and openness about these subjects that concerns me. I believe that some leaders behind these changes know the kind of pushback that will come from bar membership once the membership wakes up and takes notice and they will try to minimize that pushback.

Also, even though family law is presently the only area in which LLLTs can practice, the existing rules contemplate more practice areas and current rules actually provide what an existing LLLT must do to be licensed in other practice areas (despite no additional practice areas being currently authorized). Attorneys in other practice areas may not feel concerned at all since this presently only affects family law, but LLLTs and other reforms are expected to spread to other practice areas and to other states.

There are all sorts of problems with the current law practice regulatory construct and significant consequence as to how those problems might or might not be resolved. See the recent WSBA Governance Task Force report, which has made recommendations to both the Supreme Court and the WSBA. Note in particular that the Task Force says the Board of Governors (BOG) has no direct duties or obligations to its membership. Also, take note of all the “boards” the Supreme Court has created (including the LLLT board) that must be funded and managed by the WSBA (but ultimately controlled by the Court). These boards are funded by membership dues and consume the resources of the WSBA, which is currently operating in the red. You can review the WSBA financials here. Funding of the WSBA is obviously unsustainable unless the Court unilaterally sets the amount of dues based on the expenditures it creates, which is suggested by the Task Force.

So what should be done? My position is that the bar should be bifurcated, instead of integrated; meaning that the regulatory side and the trade association side would operate separately and independently. North Carolina is one example of this. There needs to be a separate professional association of attorneys. Although the Task Force says that this is the province of the voluntary bar associations, these voluntary bars need to come together and create a state or regional association that represents the interests of its members, lobbies on its own behalf, demands transparency from the WSBA and the Court, has a seat at any table where rules are made that affect lawyers and clients, and otherwise keeps close tabs on the regulatory, political, and corporate machinations that directly impact lawyers and our clients.

LLLT RPC 5.9

(a) Notwithstanding the provisions of Rule 5.4, an LLLT may:

(1) share fees with a lawyer who is in the same firm as the LLLT;

(2) form a partnership with a lawyer where the activities of the partnership consist of the practice of law; or

(3) practice with or in the form of a professional corporation, association, or other business structure authorized to practice law for a profit in which a lawyer owns an interest or serves as a corporate director or officer or occupies a position of similar responsibility.

(b) An LLLT and a lawyer may practice in a jointly owned firm or other business structure authorized by paragraph (a) of this Rule only if:

(1) LLLTs do not direct or regulate any lawyer’s professional judgment in rendering legal services;

(2) LLLTs have no direct supervisory authority over any lawyer;

(3) LLLTs do not possess a majority ownership interest or exercise controlling managerial authority in the firm; and

(4) lawyers with managerial authority in the firm expressly undertake responsibility for the conduct of LLLT partners or owners to the same extent they are responsible for the conduct of lawyers in the firm under Lawyer RPC 5.1.

Office Comment to Rules

[1] This Rule codifies the proposition that LLLTs may enter into fee-sharing arrangements and for-profit business relationships with lawyers. It is an exception to the general prohibition stated in Rule 5.4 that LLLTs may not share fees or enter into business relationships with individuals other than LLLTs. Rule 5.4 governs an LLLT’s responsibilities with respect to individuals who are neither LLLTs nor lawyers.

[2] In addition to expressly authorizing intra-firm fee-sharing and business structures between LLLTs and lawyers in paragraph (a), paragraph (b) of the Rule sets forth limitations on the role of LLLTs in jointly owned firms, specifying that regardless of an LLLT’s ownership interest in such a firm, the business may not be structured in a way that permits LLLTs directly or indirectly to supervise lawyers or to otherwise direct or regulate a lawyer’s independent professional judgment. This includes a limitation on LLLTs possessing a majority ownership interest or controlling managerial authority in a jointly owned firm, a structure that could result indirectly in nonlawyer decision-making affecting the professional independence of lawyers. Lawyer managers, by contrast, will be required to undertake responsibility for a firm’s LLLT owners by expressly assuming responsibility for their conduct to the same extent as they are responsible for the conduct of firm lawyers.

[1] Washington DC also permits non-lawyer ownership in law firms, on a restrictive basis.

One Comment

The Supreme Court should also allow lawyers to downgrade or have concurrent LLLT licensing as well. That way a limited practice can be run to help these poor people and avoid the liability that comes with a full blown law practice.